9609 · 5.2.1
Business ownership and sources of finance flashcards
Revision flashcards for Cambridge 9609 Business ownership and sources of finance (syllabus 5.2.1). Flip, recall, then mark a real past-paper question.
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Sole trader finance limits?
Personal savings, bank loan/overdraft, friends/family — unlimited liability limits scale.
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Ltd company finance options?
Share capital (private issue), retained profit, bank loans, leasing, trade credit.
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PLC advantage for finance?
Can raise large sums via public share issue (IPO/FPO) on stock exchange.
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Unlimited liability?
Owner personally liable for all business debts — personal assets at risk.
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Limited liability?
Shareholders lose only their investment in the company — not personal wealth beyond that.
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Equity finance?
Money from owners/shareholders — no mandatory repayment but dilutes control.
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Debt finance?
Borrowed funds — must be repaid with interest; no dilution if secured.
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Link to 1.2.2?
Business ownership topic explains legal forms; 5.2.1 links them to funding.
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What is the primary financial constraint for a sole trader due to their business structure?
Unlimited liability. This means the owner is personally responsible for all business debts, making it difficult to secure large loans as personal assets are at risk. It limits capital to the owner's wealth and small-scale borrowing.
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How does a partnership typically raise more initial capital than a sole trader?
By pooling the personal capital of two or more partners. This increases the initial investment fund and can improve the business's collective creditworthiness for securing bank loans.
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What key source of finance becomes available when a business incorporates as a Private Limited Company (Ltd)?
The ability to sell shares to private investors (e.g., family, friends, venture capitalists). This is a form of equity finance that allows for significant capital injection without incurring debt.
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Define 'stock market flotation' and state which business structure can use it.
A stock market flotation, or Initial Public Offering (IPO), is the process of offering a company's shares for sale to the general public for the first time via a stock exchange. Only Public Limited Companies (PLCs) can use this source of finance.
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Why are banks often more willing to lend to a limited company than a partnership?
Due to limited liability. In a limited company, the business is a separate legal entity, and the lender's risk is confined to the company's assets. In a partnership with unlimited liability, the lender faces greater risk as the loan recovery is tied to the partners' personal wealth.